Finding middle ground

Minister of Employment and Labor Phang Ha-nam proposed to solve the dispute over wage calculation through the tripartite government-labor-management dialogue platform. Wages have become a sensitive issue after the Supreme Court ruled in March of last year in favor of the union workers that fixed bonuses should be counted as standard wages. The expanded scope of ordinary wages can affect the size of severance pay employees receive when they retire.

During her meeting with GM Chairman Daniel Akerson in Washington, President Park Geun-hye promised to look into the issue. The American carmaker is in a court battle with employees of GM Korea over the matter. About 60 Korean companies have been sued by their labor unions demanding revision in wage terms or claims on unpaid statutory benefits in retirement. The Korean Confederation of Trade Unions, a militant umbrella organization of the unions, is preparing a collective lawsuit.

Despite the high court’s ruling, lower courts deliver mixed interpretation and sentences, aggravating labor-employer conflicts and uncertainties in corporate management. The confusion arises because there is no legal basis defining wage terms. The Labor Basic Law vaguely defines wages as “payment agreed to be supplied on a regular and uniform basis for labor.” It is therefore up to the court to decide what share of overtime or extra allowances should be considered as regular wages.

If the labor payment system had been simple and bonuses rewarded for productivity, the controversy might not have arisen. But Korean companies generally pay bonuses regardless of productivity. Some prefer them instead of raising a wage base in order to reduce severance costs. It is hard to define what ordinary wages are based on with the broad terms of the law.

If various overtime pay, allowances and bonuses are included in ordinary wages, the corporate share of social welfare and statutory benefits for severance payment would shoot up. Companies would lose profitability and face strife with workers over what to include as normal wages. If they have to go to court every time, the legal cost would also be astronomical. The government and legislature must revise the labor law in order to clearly define the term.

The labor sector wants all fixed bonuses to be regarded as ordinary wages as ruled by the Supreme Court. That would help employees on permanent payroll in some large companies, but not necessarily all workers. If employers pay regular bonuses according to labor performance and exclude them from normal wages or pay them irregularly, income of workers could decrease. If ordinary wages increase, so would labor costs, making employers scale down on new hiring. Increases in ordinary wages, therefore, may not be helpful to all. If any one of the labor or management sectors sticks to their side, conflict will only worsen. The tripartite representatives should try to find a reasonable middle ground. They should also address an overall revamp in the wage structure.